Crushing Debt: Why Canadians Should Drop Everything and Pay Off Debt


DEBT is everyone's problem.

If you're an average Canadian, you've got about $24,000 worth of consumer debt, making only minimum payments is the norm and you consistently spend more than you make. You probably don't even know how poorly you're really doing. And yet you're still being offered more easy credit. Even if you think you're doing alright, there's more to debt than just the personal cost. Debt is stressful. It can be embarrassing. And the consequences can be devastating.

Canadians are intrinsically linked to their financial institutions. Banks make a lot of money based on people's debt, and the longer personal debt lasts, the more money banks make. But if too many people get in too deep and default on their debts, the banks will default on their obligations as well. And if the banks default, it becomes the deeply-indebted government's problem to bail out the institutions. And that means it's a problem for everyone. What currently exists is a storm cloud of debt that will be hanging over future Canadians for generations, and we, as individuals and as a nation, need to take control immediately and start living within our means.

In Crushing Debt, author and educator David Trahair guides readers through the problems with debt, how different kinds of debt relate to each other, the traps many people fall into, and how to identify and solve any personal debt problems. With the world's economy in such a mess, getting debt-free is the best defensive strategy you can use. Taking care of your finances now by getting rid of your debt will allow you to protect what you have and build for the future.

Is debt scary? Undeniably. But it's time for Canadians to face their fears and crush their debts.

David Trahair is a Chartered Accountant, speaker and author. He currently operates his own public accounting firm and gives seminars on his books to CAs in B.C., Alberta, Saskatchewan, Manitoba and Ontario. He frequently appears in the media, contributes regularly to financial publications, and is the author of several books, including the bestsellers Enough Bull and Smoke and Mirrors. He was also a director of Credit Canada, a non-profit organization dedicated to helping people deal with credit problems, for six years.
Acknowledgements ix

Introduction 1

Where I am Coming From 2

A Word about Books 3

The World is on the Edge of a Cliff 4

It Ain't Gonna be Easy, But There is Hope 5

Why I Wrote This Book 6

What You Will Learn 7

Chapter 1—Debt: The Snake in the Closet 10

My Own Story 10

Marie's Story 12

Chapter 2—Why is the Consumer Debt Crisis So Bad? 16

Human Nature 16

The Environment 20

A Financially Illiterate Consumer is a Bank's Best Customer 24

Consumer Financial Education: Why is It Missing? 24

Look at What Happened in the United States 25

Chapter 3—The U.S. Subprime Mortgage Disaster 26

The Perfect Debt Storm 27

My Trip to Slavic Village, Cleveland, Ohio 28

Why the Crisis Spread 30

Houses "Under Water" 31

The Current U.S. Consumer Debt Situation 32

Could the U.S. Subprime Mortgage Crisis Come to Canada? 34

Chapter 4—Canada's Government Debt 37

Canada's Debt 38

Accumulated Versus Annual Defi cits 40

You Say "Deficit," I Say "Loss" 40

How Big is Canada's Debt? 41

Canada's Annual Defi cit History 41

Federal Debt or Accumulated Deficits 42

Future Federal Debt Projections 42

Ratio of Federal Debt to Gross Domestic Product 45

A Word about Provincial and Territorial Accumulated Deficits 46

Canada's Debt versus the Rest of the World 47

Debt to GDP May be a Misleading Measure 48

MGI's Five-Part Framework to Assess the Sustainability of Leverage 49

A Personal Health Check 50

A Health Check of Canada 50

One More Measure: Canada’s Debt Per Capita 54

What’s It Like to be Bailed Out 55

Perpetual Government Defi cits 56

Is a Foreign Government Default Inevitable? 56

What We Need to Do Now 58

Chapter 5—Canada’s Big Six Chartered Banks 59

Why are They So Worried about Household Debt? 61

An Analysis of the Big Six Canadian Chartered Banks 62

How Much Debt Do the Banks Themselves Have? 66

For A Bank, A Billion Dollar Profi t is Peanuts 66

Return On Equity—A Good Measure? 68

What about the Debt-To-Equity Ratio? 69

Why Debt is more Popular Than Equity 70

Did Canadian Banks Get a Bailout? 71

CMHC Financial Situation 73

Conclusion 74

Chapter 6—Canadian Household Debt Levels 76

Canadian Average Debt Levels 77

The Line of Credit Trap 79

Been There, Done That 79

Chapter 7—How to Get Out of Personal Debt 81

It's the Principal of the Matter 82

Canadians' Love Affair With Debt 83

The Options to Crush Your Debt 86

Paying Off Your Debts Yourself 86

Are You a Spender or a Saver? 91

Would You Like to Earn $100 by Staying at Home and Watching TV? 91

Credit Counselling: Debt Management Program (DMP) 92

Shirley's DMP Success Story 94

Consumer Proposal 97

Bankruptcy 98

Choosing Which Route to Take 102

Chapter 8—Your Credit Score 109

What is a Credit Score? 109

How to Find Out Your Credit Score 109

The Credit Reporting System is not Perfect 111

Your FICO Credit Score 111

What Determines Your FICO Credit Score 112

What Your FICO Score Ignores 115

Individual Credit Ratings 115

Warning: The Following Information Could be Dangerous 116

Credit Score Secrets You Need to Know 117

A Good Credit Score Can Save You Big Money 121

Wrap-Up 121

Chapter 9—Gaining Control Over Your Money 123

How to Track Your Spending and Find the Fat 123

Analyzing Your Spending Results 132

How Much Do You Make? 134

How Big a Mortgage Could You Get? 135

The Gross Debt Service Ratio (GDS) 135

The Total Debt Service Ratio (TDS) 136

How Much Mortgage Can You Get? 136

The Government Tightens the Insured Mortgage Rules 137

What about Regular Uninsured Mortgages and Other Debt? 139

Conclusion 140

Resources 142

Index 145